| If you are a serious sports fan, a fairly serious gambler | | | | is a critical component to being successful in a |
| or work in some aspect of high-finance, you may have | | | | Calcutta. You do not want to spend the majority of |
| heard your friends or co-workers kicking around the | | | | you capital on a single team, only to find out that that |
| term "Calcutta auction", particularly if its close to | | | | team represents 50% of the total pot. You will also |
| "March Madness" time (I first came across the | | | | want to determine the % payout of each win in a |
| Calcutta auction during my analyst years in I-banking). | | | | given round. |
| What the devil are they talking about you ask? Quite | | | | For example, if a team you own wins a first round |
| simply, a Calcutta auction is any auction occurring the | | | | game, it may only be worth 0.5% of the total pot. If |
| Indian city of Calcutta. Kidding! (well, sort of, because | | | | they go on to win the championship, that final win may |
| technically that IS a correct definition). In the world of | | | | be worth, say, 10% of the pot. It is CRITICALLY |
| sports gambling, Calcutta auctions generally refer to a | | | | IMPORTANT to understand that the total amount you |
| gambling pool where entrants "buy" teams (players, | | | | spend on your teams is not an accurate |
| horses, etc.) in an auction-style format (I do not | | | | representation of your at-risk capital. This is because |
| condone gambling for real money. Capital in this article | | | | the only way you could lose 100% of your capital is if |
| refers to imaginary funds, or "points"). The easiest way | | | | NONE of your teams win a single game, which if you |
| to describe and understand this is to look at the most | | | | do your homework, is an incredibly unlikely scenario. If |
| common modern-day example: the men's college | | | | you are willing to lose a given amount, you should be |
| basketball tournament. Here is a very brief overview: | | | | willing to spend a decent amount more than that on |
| 1. An auction time and location are selected | | | | your teams. |
| 2. Since there are 64 teams (I know, I know...65 with | | | | Your next, and most important step, is to do some |
| the play-in game), there will be 64 teams up for auction | | | | research on the teams for which you will be bidding. |
| 3. Teams come up for auction in a random order | | | | The way people approach this step varies wildly. |
| 4. Entrants begin bidding for the team currently on the | | | | Some people rely on a "hunch". Others go with team |
| auction block. In order for an entrant to "own" a given | | | | loyalty - e.g. I went to School X, therefore I HAVE to |
| team, he must be the highest bidder at the end of the | | | | own them or I love the team's mascot and want to |
| bidding round | | | | root for his team. The last group of people, and |
| 5. There is no limit on the number of teams a bidder | | | | generally the most successful, conduct sophisticated |
| can buy | | | | statistical analysis using complex excel models. The |
| 6. The number of games a team wins in the | | | | last group is able to approach the auction in the most |
| tournament determines the percentage of the pot the | | | | objective way possible, as they aspire to ascribe "fair" |
| owner is awarded (early round wins are worth a much | | | | values to teams. This is the approach I take and it has |
| smaller % of the total pot than later round wins) | | | | proven quite successful. Now that you have |
| That is basically it for the semantics of the auction. | | | | determined what teams you would like to own, its |
| Sounds simple, right? Well, in theory it is, in reality, | | | | auction time. |
| however, Calcutta auctions are highly complex and | | | | The auction is generally conducted in person at a set |
| involve a great deal valuation work (which is why its | | | | time and place. The rules of the auction should be |
| so popular with investment bankers, hedge fund | | | | clearly spelled out beforehand (e.g. how to signal you |
| analysts, P/E analysts, lawyers and anyone else | | | | want to bid, how long after the last bid you deem the |
| involved in valuation work). If a Calcutta-style auction | | | | bidding closed, etc.) to avoid any conflict. Each team |
| sounds interesting to you, keep on reading. | | | | will be put up for auction until all are sold (In some |
| A Detailed Overview of Calcutta Auctions | | | | auctions, the 13-16 seeds are packaged as a single |
| Now that you know the basics of a Calcutta auction, | | | | team). Let's say you win the teams you wanted. What |
| lets dive a little deeper. I will present this example using | | | | now? |
| a men's college basketball Calcutta once again (keep | | | | Once the auction has wrapped up and you have your |
| in mind this info is just as applicable to any other | | | | teams, most of the hard work is over, but the fun is |
| sports...professional football is a pretty common | | | | just beginning. This is what it must feel like to be the |
| Calcutta format as well). | | | | owner of a professional sports team! You will be |
| So, the word is out that a men's college basketball | | | | rooting for the teams you own harder than the school |
| Calcutta is forming in your office / school / group of | | | | you graduated from (or are currently attending as the |
| friends. If you are interested in participating, the first | | | | case may be). It's a blast! You will also find yourself |
| thing you will need to figure out is how large the pool | | | | updating your cumulative winnings and trying to figure |
| size is targeted to be (or if you are organizing, how big | | | | out how many more wins you need to break-even. |
| you want it to be). Estimating the total size of the pool | | | | If you participate once, you will undoubtedly be hooked! |